Diplomats say member states are split down the middle over whether to act now against Washington’s new Helms-Burton and D’Amato laws, or to wait for the American presidential elections six weeks from now and hope the storm will pass.

Union governments have already agreed on four possible reactions if Americans start suing Europeans for investing in Cuba, Iran or Libya: to counter-sue in European courts; to bar those involved from entering the EU; to publish a ‘blacklist’ of American firms involved in such suits; and to take the US to arbitration at the World Trade Organisation for illegally extending its own laws overseas.

But even if EU member states agree to act now, they still have to work out the legal basis for any moves they make. This is vital if the Union is to defend those moves successfully in court against challenges by Americans.

The normal procedure used for commercial matters is Article 113 of the Maastricht Treaty, under which a qualified majority of EU governments may approve a proposal put forward by the European Commission.

But Article 113 only concerns trade in goods and services, not investment, and therefore does not equip the Union to fight against Helms-Burton and D’Amato sanctions.

EU governments are now examining whether the article’s application can be extended to cover investment.

Another idea is to use an emergency article in the treaty, Article 235, which allows member states to act in ways “necessary to attain, in the course of the operation of the common market, one of the objectives of the Community”. Only last weekend, finance ministers invoked Article 235 as the legal basis for naming the Euro and converting ecus into euros.

However, legal advisers say even that catch-all article will not do, because retaliation against another country is not an ‘objective’ of the Union. They argue thatself-defence against threatened sanctionsalso falls outside the treaty.

This leaves governments still searching for a way to help those hit by the US legislation to counter-sue in European courts.

Member states are likely to fall back on an agreement that each will implement national ‘blocking’ legislation of its own – and that will take time.

One of the Union’s proposed retaliatory measures is to refuse entry into Europe to Americans who have sued EU companies.

Policy on entry visas comes under the umbrella of intergovernmental cooperation. Here again therefore, member states would have to implement their own national measures, in concert, but not as a group.

These so-called ‘K3’ decisions, however, can be slow to take effect.

Advocates of swift action are seeking recourse to the treaty’s Article 100c, which allows the EU to introduce temporary visa requirements for nationals of any country. But legal advisers are still unsure that it can be used in this situation.

Only one of the moves open to the Union now is relatively free of legal hassles: a decision to take the US to arbitration at the WTO. But that requires political approval by the 15, who have not yet reached agreement on the best course of action.

Some fear that the US will try to defend its moves by arguing that its national security is endangered by the current regimes in Cuba, Iran and Libya. If it does, all the parties will be dragged into a fight on an obscure WTO article that has never been tested.

The Commission has already taken the first step in its own fight-back – a blacklist of US companies or people suing Europeans under Helms Burton – and it has invited interested parties to contact the Commission’s Directorate-General I (external relations) if they have any informationon such lawsuits.

US Ambassador to the Union Vernon Weaver said this week he hoped EU governments would not try to retaliate too quickly, adding: “We hope European countries will give the president time to take steps next January” to waive or lift the sanction threat.

EU foreign ministers will have to give Weaver an answer when they meet on1 October.